Essex Property Trust, Inc. — 2021 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2021. Essex is a self-managed REIT focused primarily on apartment communities in Southern California, Northern California and the Seattle metro area. At year-end, it owned or held interests in 252 operating communities with 61,911 apartment homes. Apartment communities generated 99.3% of 2021 revenue. The filing combines Essex and its operating partnership, which conducts substantially all business operations.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $1.441 billion | $1.496 billion |
| Net income | $515.7 million | $599.3 million |
| Net income available to common stockholders | $488.6 million; $7.51 diluted EPS | $568.9 million; $8.69 diluted EPS |
| FFO attributable to common stockholders and unitholders | $941.0 million; $13.98 per diluted share/unit | $865.3 million; $12.78 |
| Core FFO | $841.3 million; $12.49 per diluted share/unit | $868.5 million; $12.82 |
| Cash provided by operating activities | $905.3 million | $803.1 million |
| Same-property NOI | $891.4 million | $916.6 million |
At December 31, 2021, total assets were $13.0 billion and total liabilities were $6.8 billion. Debt was approximately $6.3 billion, including $5.4 billion of fixed-rate public bonds and $565.6 million of variable-rate debt. Unrestricted cash was $48.4 million and marketable securities were $191.8 million. Credit facilities totaled $1.24 billion, with approximately $341 million drawn. Ratings were Baa1/Stable from Moody’s and BBB+/Stable from S&P. The fourth-quarter dividend was $2.09 per share, paid January 14, 2022; 2021 declared dividends were $8.36 per share.
Material changes versus the prior comparable period
- Total property revenue fell 3.7% to $1.431 billion. Same-property revenue declined 1.2%; average financial occupancy improved 40 basis points to 96.4%, but average rental rates decreased 1.5% and cash concessions and delinquencies increased.
- Regional same-property revenue was up 3.2% in Southern California, down 5.6% in Northern California and down 1.7% in Seattle.
- Net income fell year over year, while FFO rose. Core FFO declined slightly. Comparisons are affected by nonrecurring and non-core items, including a $234.7 million co-investment remeasurement gain in 2020, real estate sale gains and 2021 investment and legal-settlement-related income.
- Operating cash flow increased to $905.3 million. Investing activities used $397.4 million and financing activities used $533.3 million.
- Essex sold four communities for $330 million and recorded $143.0 million of real estate sale gains. It issued $750 million of senior notes at coupons of 1.70% and 2.55%, and repaid or refinanced debt, including $300 million of notes due 2023.
Outlook, commentary and risks
Management projected 2022 same-property revenue growth of 7.0%–8.5% and same-property operating expense growth of 3.5%–4.5%. It forecast job growth across its regions and expects operating cash flow, cash and securities, credit availability, capital markets access and potential asset sales to meet anticipated 2022 cash needs. These are forward-looking estimates, not guarantees.
COVID-19-related cash delinquencies as a percentage of scheduled same-property rent improved from 2.5% in 2020 to 1.9% in 2021; management said delinquencies had not materially affected liquidity. The filing also notes continuing effects from some eviction restrictions, remote-work shifts, labor shortages and supply-chain disruptions. Other principal risks include substantial geographic concentration (83% of 2021 rental revenue came from California), rent-control and other regulatory changes, earthquakes and other climate or catastrophe exposure, limited insurance coverage, interest-rate and refinancing risk, and development cost or timing overruns.
At year-end, the development pipeline included 371 homes, with estimated total project costs of $217 million and approximately $61 million remaining to spend ($32.6 million representing the Company’s share). The Company reported no impairment charge in 2021. KPMG issued an unqualified audit opinion on the financial statements; management and KPMG reported effective internal control over financial reporting for Essex.
Important facts for investors to verify
- Whether the projected 2022 same-property revenue growth is achieved, particularly given Northern California’s 2021 decline and the assumptions behind rental-rate and occupancy recovery.
- How much reported earnings and FFO depend on asset-sale gains, marketable-security valuation gains, legal settlements and other non-core items; compare GAAP results with Core FFO.
- Debt maturities, variable-rate exposure and refinancing costs, including the transition away from LIBOR and the availability of credit facilities.
- Collection and repayment status of related-party bridge loans and other receivables, including loans with early-2022 maturities, and the terms and performance of co-investments and preferred equity.
- Exposure to California regulation and geographic concentration, earthquake and other uninsured losses, and remaining development commitments and cost estimates.